Arcane Topics in Economics and Philosophy, Interspersed with Various Distractions

January 2009

January 31, 2009

DAVOS, Switzerland — Even as Congress looks for ways to expand President Obama’s $819 billion stimulus package, the rest of the world is wondering how Washington will pay for it all.

Few people attending the World Economic Forum question the need to kick-start America’s economy, the world’s largest, with a package that could reach $1 trillion over two years. But the long-term fallout from increased borrowing by the United Stated government, and its potential to drive up inflation and interest rates around the world, seems to getting more attention here than in Washington.

“The U.S. needs to show some proof they have a plan to get out of the fiscal problem,” said Ernesto Zedillo, the former Mexican president who helped steer his country through a financial crisis in 1994. “We, as developing countries, need to know we won’t be crowded out of the capital markets, which is already happening.”...

“There aren’t that many safe havens,” said Alan S. Blinder, a Princeton economist who is a former vice chairman of the Federal Reserve in Washington, explaining why the dollar’s status as a reserve currency is unlikely to be threatened.

Instead, it is the dollar’s long-term value against other currencies that is vulnerable. “At some point, there may be so much Treasury debt, that investors may start wondering if they are overloaded in dollar assets,” Mr. Blinder said...

“Even before Obama walked through the White House door, there were plans for $1 trillion of new debt,” said Niall Ferguson, a Harvard historian who has studied borrowing and its impact on national power. He now estimates that some $2.2 trillion in new government debt will be issued this year, assuming the stimulus plan is approved.

“You either crowd out other borrowers or you print money,” Mr. Ferguson added. “There is no way you can have $2.2 trillion in borrowing without influencing interest rates or inflation in the long-term.”

Mr. Ferguson was particularly struck by the new borrowing because the roots of the current crisis lay in an excess of American debt at all levels, from homeowners to Wall Street banks.

“This is a crisis of excessive debt, which reached 355 percent of American gross domestic product,” he said. “It cannot be solved with more debt.”

While Mr. Ferguson is a skeptic of the Keynesian thinking behind President Obama’s plan — rather than borrowing and spending to stimulate the economy, he favors corporate tax cuts — even supporters of the plan like Mr. Zedillo and Stephen Roach of Morgan Stanley have called on the White House to quickly address how it will pay for the spending in the long-term.

“It’s huge,” Mr. Roach, the chairman of Morgan Stanley Asia, said. “President Obama has now laid out a scenario of multiyear, trillion-dollar deficits.”

The stimulus is widely expected to pass, but once it does, Mr. Roach said the focus would shift to “who foots the bill and what is the exit strategy. We don’t have the answer to either question.”

"Exit strategy." Wow. The Iraq War analogies are already starting. I think investors are overloaded on dollar assets, by the way.

UPDATE: David Brooks observes that the stimulus plan has "abandoned the [Larry] Summers parameters" and has "no fiscal exit strategy." Opposition to the bill in its current form is coming from Alice Rivlin, Bill Clinton's former budget director.

Even without the election of Barack Obama and Democratic gains in Congress, conservatives were going to have to reassess much of their philosophy on the key issues of taxing and spending. The financial crisis has already led to a vast expansion of spending, and even if John McCain had won, there was going to be a lot more to come. The aging of the baby boom generation alone means there will be increasing demands for Social Security, Medicare and other programs for the elderly in coming years. (The first baby boomer turns 65 in 2011.)

Moreover, Americans’ zeal for tax cutting — the Republicans’ best issue for the past 30 years — has clearly waned. A Wall Street Journal/NBC News poll shows Americans now favoring the Democrats on taxes, and polls by Gallup, Rasmussen, and Harris show an increased willingness to tax the rich and redistribute income.

Given this reality, conservatives must adapt. If they continue to insist upon rolling back the welfare state by using tax cuts to “starve the beast” or privatize Social Security and Medicare, they will fail. There is simply no appetite for big spending cuts or the radical restructuring of programs that benefit a huge percentage of Americans, especially when there has been a severe downturn in the stock market that has wiped out trillions of dollars in retirement savings.

Historically, Republicans have come back from electoral losses by accepting the fact that Americans mostly like government spending. Rather than make a futile effort to take away something most voters want, Republicans have instead worked to make the welfare state function efficiently, target benefits to those that play by society’s rules and finance those benefits without additional debt.

A guy who's willing to argue like this has no business attacking anyone for "betraying" conservatism. Bartlett's title was repugnant, but it should at least have come from a doctrinaire small-government conservative. Anyway, the ineptness of Bartlett's analysis here is typical of Bush's severest critics.

What voters want, fiscally speaking, is simple: 1) Lower taxes. 2) More government spending. Not in general, of course, but most particular programs deserve a bit more support, and there are a few more that we could use. 3) Reduce the budget deficit. The people know perfectly well what they want, but those crooked, scoundrelly politicians in Washington refuse to do it! Seriously, of course there is no appetite for big spending cuts. Just like Popeye has no appetite for spinach. But not only is there no appetite for tax hikes, Barack actually ran on-- indeed, outflanked McCain on-- tax cuts.

If the Social Security program "benefits a huge percentage of Americans," it harms a much bigger percentage of Americans. Certainly anyone under 40 is being robbed blind by a program which is headed for bankruptcy before he or she will be able to enjoy its benefits. Social Security also directly suppresses the national savings rate, taking people's money now and promising to give (some of) it back later, and in the meantime spending it. The national endemic of indebtedness is a direct consequence of the perverse incentives created by the Social Security program.

Bartlett's claim that "historically, Republicans have come back from electoral losses by accepting the fact that Americans mostly like government spending" is fifty years out of date. That's how the Republicans came back, briefly, in the 1950s. That was a time which no Republican should look on with pride, the age of McCarthyism and segregation, national paranoia and closed borders. In 1980 and 1994, Republicans came back by fighting hard against Big Government.

That said, I agree with one thing here: I think the GOP should embrace redistribution. Social Security engages in perverse redistribution. FICA payroll taxes are the most regressive taxes in the country, paid at a flat rate by every working person, even the poorest, while Social Security benefits are also paid out in regressive fashion: not only are they paid to affluent seniors as well as to the poor, but affluent seniors get more Social Security benefits than poorer ones.

What I'd like to see is a deal of the following kind. The GOP should say, Let's make the following tax compromise. First, we'll agree to remove the cap on the Social Security payroll tax cap. Second, if Barack Obama fulfills his promise to cut taxes on 95% of working people (including negative tax rates for those currently paying no tax, or, better yet, elimination of the FICA payroll tax for low-income earners), then we'll accept a rise in marginal rates back to Clinton-era levels-- which will mean that total upper-income tax rates will still be lower than under Clinton, since they'll rise equally fast and start from a lower level. In return for these concessions, demand progressive indexation of Social Security benefits, that is, let the top Social Security benefit rate rise at the rate of inflation and not the rate of wage growth. Under a plan like this, government would become both smaller and more redistributive.

January 29, 2009

Most of Washington has reached quick consensus: Government must do something big to shock the economy, and it should cost between $800 billion and $900 billion.

But dissident economists and investment professionals offer a much different take: Most of Washington is dead wrong.

Instead of fighting over what should go in the economic stimulus bill, pitting infrastructure spending against tax cuts and contractors against contraceptives, they say lawmakers should be fighting against the very idea of any economic stimulus at all. Call them the Do-Nothing Crowd.

“The economy was too big. It was all phantom wealth borrowed from abroad,” says Andrew Schiff, an investment consultant at Euro Pacific Capital and a card-carrying member of the stand-tall-against-the-stimulus lobby. “All this stimulus money is geared toward getting consumers spending and borrowing again. But spending and borrowing were the problem in the first place.”...

This time around, the Do-Nothing Crowd argues that the new spending — which dwarfs last year’s effort — is probably insufficient and definitely unwise. It is largely an economic argument. But there is also a cultural dimension. Many of the Do-Nothings argue that a painful recession is the best way to destroy America’s runaway culture of irresponsibility and debt. Economic turmoil, after all, has a way of grounding Americans.

Schiff and the other Do-Nothings argue that the government should simply allow the economic chips to fall where they may. Dramatic belt-tightening across the board is the only way, they say, to stop the endless cycle of borrowing.

“Our standard of living needs to come down to the point where it can be supported by organic output,” says Schiff. “It’s brutal, but it’s called capitalism, and it works. The alternative is called socialism, and it doesn’t work.”...

For the Do-Nothings, the argument isn’t about economic nuance, it’s about right and wrong. They say that borrowing more money to finance a stimulus package will pass a crushing and possibly permanent debt load on to the next generation. “The question is,” says Chris Edwards, the director of tax policy studies at Cato, “is this morally proper?”

The Do-Nothing Crowd also points to some of the hidden upsides of the recession — developments they say are already helping position the U.S. economy for a recovery.

The most noticeable impact is that housing prices are coming down to a more sustainable level. For first-time buyers, this is reopening a path to homeownership that had been all but blocked by hyper-inflated prices. The National Association of Realtors reported this week that housing sales rose 6.5 percent from November to December, largely on the strength of bargain hunters snapping up foreclosed properties. That could be a sign that the housing market is on its way to a balancing point at which lower prices once again draw new buyers into the system.

For the record, I'm not a member of the Do-Nothing Crowd. I favor the aggressive and unorthodox monetary policy of the Federal Reserve, except that I would like it to be even more aggressive and unorthodox. Also, given that the world is suddenly willing to buy huge amounts of US debt for super-low interest rates, denominated in a currency (dollars) which it is perfectly responsible for us to try to inflate in order to reverse the recent house price declines, we should take the money!-- or at least, it would be a good idea if we were competent to use it well. I would support intellectual property buyouts on a large scale.

Marty Feldstein's idea of more defense spending as a stimulus sounds like a good idea, too, the military being probably the government agency least vitiated by corruption and lobbying, and with the least tendency to crowd out private-sector investment. Also, the military probably needs to rebuild capacity after Iraq and Afghanistan. It's worth noting that the most convincing examples of successful Keynesian stimulus-- early Hitlerian Germany and the US during WWII-- involve not just any spending but precisely defense spending. (The worldwide boom that occurred immediately after the Iraq war is possibly another example.)

Even though the rebate last year is generally thought not to have worked, I'd support another iteration of that, and on a larger scale. I've heard a saying that if you do the same thing and expect something different to happen, that's a definition of crazy, but if that's ever true it's certainly not true when lots of other variables are changing. Keynesians will point out that a big tax rebate might just be saved (it's a little hard to specify exactly why they say that's a bad thing since savings can be channeled through to investment; frankly, they haven't fully thought it through; in fact, not to have thought a lot of things through is almost the definition of a Keynesian, since it's by thinking things through that a lot of late 20th-century macroeconomists turned into monetarists and real-business-cycle theorists; the Keynesian reaction to these schools could almost be summarized as saying that it can be harmful to overthink things... but I digress) but at least it could move money into the economy fast. And it might not be saved, if a lot of people have become suddenly credit-constrained, which is plausible.

So I'm not against a fiscal stimulus, even a spending stimulus, in principle; indeed, I might even advocate one, if it were shrewdly designed. The stimulus just passed by the House is a great demonstration of why macroeconomic management can't be entrusted to Congerss. Jim Manzi calls it a "disaster." I don't know if I'd say that. What does seem to be clear is that "stimulus" is a complete misnomer. As Greg Mankiw observes, only 8% of the spending will occur in 2009. If the recession is over by the end of 2009, the rest of the spending will come too late to help (even if for the moment we adopt a pure Keynesian perspective). If the recession is not over, or nearly over, by the end of 2009, tax revenues will take a severe hit and make this bill severely unaffordable. Also, the prospect of more spending in future, and therefore more inefficient crowding out of the private sector and, one supposes, more taxation, should depress spending now. As a "stimulus" package, this bill makes no sense. But of course, it's just the sort of things that Congress, with its inexpert membership managing vast bureaucracies and tugged by lobbyists, would produce. Which is why counter-cyclical fiscal policy is generally a bad idea that economists have been turning away from for a generation. Even if the economics of it possibly makes some sense, to do it competently requires far more disinterested skill than legislators possess.

The bill makes sense in a different way, namely, as an effort to alter our economic constitution in a social-democratic direction. Taken that way, it could be worse. Incremental extra funds for education, infrastructure, highways, and renewable energy are bad ideas, but much less disastrous than, say, an attempt to overturn the 1996 welfare reform. The Democrats won the election, and while I don't think this is what people-- or at least, swing voters-- were voting for, the Democrats can plausibly interpret their mandate that way. I'm not sure the bill will hurt the economy, in the sense that the economy will be worse off if it passes than it is now, because the markets may have been pricing this in ever since October when Obama took a lead in the polls. I'm not sure the economy will be immediately helped if it gets defeated, because it will still be spooked that the Democrats will come back and do something worse.

What is clear is that, when you combine the Democrats' ratcheting up of long-term spending with Barack's promise of tax cuts, we're moving further than ever away from what Hillary Clinton, at the DNC, called "fiscal sanity." We badly need to downsize government, like we did after the GOP won control of the House in 1994. So it's good to see that not a single House Republican voted for the bill. Voters might not wish that the GOP were in charge now-- they might like the sound of "stimulus"-- but when they figure it's time to put our fiscal house in order (say, 2010), they'll know who to turn to.

UPDATE: A GOP filibuster in the Senate could be politically costly. Yet if one has the power to stop a bill that's bad for the country, doesn't one have to do it? McCain and the GOP Senate leadership has a hard choice ahead.

January 28, 2009

A sad story-- one of many, I'm afraid-- about how our evil immigration enforcement efforts are gratuitously wrecking hundreds of lives.

During a bitter cold January week, penniless women and children stream into a Catholic church in the northeast Iowa town of Postville that has served as their refuge since May 12, when 389 workers were arrested during an immigration raid at the Agriprocessors Inc. meatpacking plant. The women are among 26 former Agriprocessors workers, most from Guatemala and Mexico, charged with immigration violations and fighting deportation. Released on humanitarian grounds but required to wear electronic ankle bracelets, the women, as well as about 59 children, now depend on the community, especially St. Bridget's church, which operates a Hispanic ministry from a worn brick house.

One woman needs medical care for her anxious 12-year-old son, who has started wetting his bed. Another needs legal help for her husband, arrested during a return visit to Agriprocessors by immigration agents last fall. "I am very sad and worried," says Irma Lopez, 28, a former Agriprocessors worker who remains in limbo with her young daughter while her husband is back in Guatemala, one of many arrested workers deported in October after serving five months in prison. "I worked since I was eight years old and now I feel worthless. I can work but I'm not allowed to."

Eight months after the Agriprocessors raid, Postville is still grappling with what its leaders call "a humanitarian and economic disaster," compounded by the recession and a harsh winter. Life isn't much easier for "legal" workers. [...]

Help has come primarily from community groups and churches, with donations from near and far. The local food pantry is now open Sundays, as well as Wednesdays, serving about 150 people. But some leaders say the help is not enough and worry about shortages and increasing hardships, especially evictions...

If Obama can put an end to this national disgrace, he'll be a great leader. If not, not. If the GOP can purge itself of the poison of nativism, it deserves to be a majority party again. If not, not.

Praise God for the Church, serving now, as so often in history, as a light of mercy and righteousness amidst the depredations of tyrants... Suggestion for political theater: those who have been forced to wear electronic ankle bracelets should wear Stars of David, too.

UPDATE: Also, note that forbidding people to work lowers GDP. That's not the biggest way our enforcement efforts have damaged our economy, though; housing prices are. As we stepped up enforcement, although the reduction in the illegal immigrant population has been pretty small, it reduced the number of homebuyers. How large a role immigration enforcement played in sinking housing prices will never be known, but that it played a role can hardly be doubted. And sinking housing prices, in turn, are at the root of the financial crisis.

It's worth noting that the Great Depression of the 1930s was preceded by the nativism of the 1920s.

January 27, 2009

Someone returning to Earth from a yearlong sojourn in outer space could be excused for feeling disoriented.

After all, when said space traveler departed our fair planet, the U.S. economy was buckling under the weight of the burst housing bubble. The blame game was in full swing, with the villains ranging from Alan Greenspan and his easy money policies to consumers borrowing and spending beyond their means to financial institutions enabling profligate spending to a misallocation of capital to housing.

Fast forward one year, the crisis is still going strong, the villains are still under attack, yet something curious has happened: The policies and actions responsible for the economy’s illness are now being prescribed as cures.

No paradox here. Money, for better or worse, is a good that, in our society, is monopolized by the government. Credit is a substitute for money, of which private banks, credit card companies, etc. may create a lot or a little. Credit is regulated but is ultimately too complex and decentralized to be controlled by policy. Instead, the government uses its control of the money supply to stabilize prices. If prices are rising, the government should absorb money (sell bonds) to rein them in. If prices are falling, the government should disperse money (buy bonds or other assets) to raise them. Greenspan let prices (not consumer prices, but housing prices and to a lesser extent stock prices) rise too much. Now prices are rising too little (or falling if you include housing and stock prices). Money was too easy in the 1990s and early Bush years, allowing prices to rise; but now, it needs to be lax.

This is no more paradoxical than to say that sometimes it's a good idea to turn the thermostat up, other times you want to turn it down.

With respect to most prominent economists, I accord them a certain form of professional courtesy, namely that even when I disagree with them, I regard their opinions as held in good faith, even when I disagree with them, and even when there seem to be some pretty obvious reasons why they can't be right. Perhaps in some cases they are arguing in bad faith and I'm unduly generous, but I'd rather do that than accuse the innocent.

There is only one exception to that rule: Paul Krugman. I'd hesitate to say the name if it weren't for this NY Times column ("Bad Faith Economics") in which he basically calls half the profession liars.

As the debate over President Obama’s economic stimulus plan gets under way, one thing is certain: many of the plan’s opponents aren’t arguing in good faith. Conservatives really, really don’t want to see a second New Deal, and they certainly don’t want to see government activism vindicated. So they are reaching for any stick they can find with which to beat proposals for increased government spending.

It's true that it would be quite confusing if government activism were suddenly vindicated in the way Krugman is thinking of, contrary to both reason and past experience. The New Deal didn't work. Combined with Hoover's interventionism, it turned what could have been a V-shaped recession into an L-shaped recession, making the whole decade of the 1930s a lost decade. It's true that the economy grew-- a dead cat bounce-- during FDR's first term, but it never regained 1929 levels or came near full employment, and came crashing back down in 1937-8. Only the war, which forced us to return to some kind of economic rationality just to make bombers and tanks, got us out of it, and by the end of it FDR was dead. It's not for the sake of our ideology or class interests or whatever that most economists, especially conservative ones, don't want a rerun of the 1930s. It's because they were disastrous times for humanity.

Some of these arguments are obvious cheap shots. John Boehner, the House minority leader, has already made headlines with one such shot: looking at an $825 billion plan to rebuild infrastructure, sustain essential services and more, he derided a minor provision that would expand Medicaid family-planning services — and called it a plan to “spend hundreds of millions of dollars on contraceptives.”

And why is the government spending so much on Medicaid family planning? Condoms are cheap. Better to give poor people the money and let them buy condoms themselves-- or something else. Particularly since milions of respectable voters have moral objections to contraceptives. Boehner is right.

But the obvious cheap shots don’t pose as much danger to the Obama administration’s efforts to get a plan through as arguments and assertions that are equally fraudulent but can seem superficially plausible to those who don’t know their way around economic concepts and numbers. So as a public service, let me try to debunk some of the major antistimulus arguments that have already surfaced. Any time you hear someone reciting one of these arguments, write him or her off as a dishonest flack.

First, there’s the bogus talking point that the Obama plan will cost $275,000 per job created. Why is it bogus? Because it involves taking the cost of a plan that will extend over several years, creating millions of jobs each year, and dividing it by the jobs created in just one of those years.

It’s as if an opponent of the school lunch program were to take an estimate of the cost of that program over the next five years, then divide it by the number of lunches provided in just one of those years, and assert that the program was hugely wasteful, because it cost $13 per lunch. (The actual cost of a free school lunch, by the way, is $2.57.)

The true cost per job of the Obama plan will probably be closer to $100,000 than $275,000 — and the net cost will be as little as $60,000 once you take into account the fact that a stronger economy means higher tax receipts.

OK, I'll skip this one because I'm not up on the accounting-- JustOneMinute has what seems to me a devastating takedown though. I'd want to ask: Is the government going to be creating net jobs, or attracting employees out of the private sector, crowding out private employment? I don't believe that anyone really has any idea.

Next, write off anyone who asserts that it’s always better to cut taxes than to increase government spending because taxpayers, not bureaucrats, are the best judges of how to spend their money.

Here’s how to think about this argument: it implies that we should shut down the air traffic control system. After all, that system is paid for with fees on air tickets — and surely it would be better to let the flying public keep its money rather than hand it over to government bureaucrats. If that would mean lots of midair collisions, hey, stuff happens.

The point is that nobody really believes that a dollar of tax cuts is always better than a dollar of public spending...

This is ludicrous. Obviously we're going to finance critical functions like air traffic control in any case. Stimulus spending, by its nature, is going to be on discretionary things. And there is a reason to presume that, not in every case but as a rule, a dollar of tax cuts/private spending is better than a dollar of public spending. Krugman adds:

Meanwhile, it’s clear that when it comes to economic stimulus, public spending provides much more bang for the buck than tax cuts — and therefore costs less per job created (see the previous fraudulent argument) — because a large fraction of any tax cut will simply be saved.

This suggests that public spending rather than tax cuts should be the core of any stimulus plan. But rather than accept that implication, conservatives take refuge in a nonsensical argument against public spending in general.

Earth to Krugman. This is a reasonable Keynesian argument. But a lot of economists just don't believe in Keynesianism. There has been a counter-attack against Keynesianism for the past thirty years or so. Have you heard of "the rational expectations revolution?" If you're skeptical about, but do not completely dismiss, Keynesianism, to advocate a tax-cuts-only stimulus is an application of the "first, do no harm" principle. Government spending, especially discretionary spending undertaken fast, is often/usually wasteful. Even if you do stimulate aggregate demand you're destroying some aggregate supply in the process, and if you don't stimulate aggregate demand-- for example, because people see the budget deficit and get even more scared about the future-- then you're still in a recession and have dug yourself a deeper hole. If you cut taxes, at least whatever the money is spent on passes the test that somebody thought it was worth it to them, for their own money. This "argument against public spending in general" is not only not nonsensical, it is absolutely central to welfare economics and the theory of constrained maximization, to the extent that the discipline of economics is inconceivable without it. But don't worry, Krugman understands it perfectly well. It's just not in his interest to admit that right now.

Finally, ignore anyone who tries to make something of the fact that the new administration’s chief economic adviser has in the past favored monetary policy over fiscal policy as a response to recessions.

It’s true that the normal response to recessions is interest-rate cuts from the Fed, not government spending. And that might be the best option right now, if it were available. But it isn’t, because we’re in a situation not seen since the 1930s: the interest rates the Fed controls are already effectively at zero.

That’s why we’re talking about large-scale fiscal stimulus: it’s what’s left in the policy arsenal now that the Fed has shot its bolt. Anyone who cites old arguments against fiscal stimulus without mentioning that either doesn’t know much about the subject — and therefore has no business weighing in on the debate — or is being deliberately obtuse.

Not at all. The Fed can always print money. Krugman understands this because that's what he was telling the Japanese to do in the 1990s, when they were in a long slump which Keynesian-style fiscal stimulus only exacerbated. It can print money and buy assets, as it's been doing, or we could just print money and send it out to regular citizens. Krugman has made a strange argument that you can fall into a liquidity trap where newly-printed money just gets saved. I didn't read the model carefully enough to say whether it's right, or whether its assumptions are plausible, though it would have the odd implication that in the equation of exchange, MV=PY, V would have to be a function of M such that V=1/M-- exactly! In any case, many economists can believe in quite good faith, either (a) that Krugman's liquidity-trap model is wrong and liquidity traps cannot occur, or (b) that we're not in one now. It doesn't seem that even the Japanese in the 1990s were in one, because when they did try "quantitative easing" of the money supply, it worked. The claim that "the Fed has shot its bolt," i.e., that monetary policy can do no more and we're in a liquidity trap, is at best a plausible hypothesis. To claim that this is THE verdict of economic theory and that to deny it is bad faith, is itself bad faith. Krugman is being, so to speak, "deliberately obtuse."

These are only some of the fundamentally fraudulent antistimulus arguments out there. Basically, conservatives are throwing any objection they can think of against the Obama plan, hoping that something will stick.

But here’s the thing: Most Americans aren’t listening. [No polls are cited in support of this claim.] The most encouraging thing I’ve heard lately is Mr. Obama’s reported response to Republican objections to a spending-oriented economic plan: “I won.” Indeed he did — and he should disregard the huffing and puffing of those who lost.

If Obama does take Krugman's advice and rams through a big stimulus bill over the opposition of Republican "losers" and against the professional judgment of much of the economics profession, his behavior will be a notable contrast to that of George W. Bush in 2005. Bush ran and won on Social Security reform twice. Unlike Obama, Bush won by laying out a well-thought-out platform at the Republican National Convention, which swung enough voters to create a generally stable pro-Bush majority (though a poor performance in the first debate caused his support to dip briefly). Voters gave him a solid mandate for this platform by re-electing him with increased margins throughout the country and electing 55 Republican senators and an increased majority in the House. Bush, accordingly, set out to reform Social Security. He wanted to do so, however, in a bipartisan fashion with Democratic support, and invited the Democrats to discuss options. The Democrats refused to do so, choosing instead a bitter scorched-earth policy. So Social Security reform did not pass. That was unfortunate for the country, but one must still Bush with a certain political good sportsmanship.

Obama did not run as a big-spending liberal. "I will cut taxes - cut taxes - on 95 percent of working people," is surely the best-remembered line in his campaign, and his ads in the last month of the campaign thundered over and over again, "We just can't afford John McCain," as if John McCain were going to be the bigger spender of the two candidates. Against this, McCain claimed over and over again that Obama was going to raise taxes, but the claim ultimately fell flat. I think people decided, not necessarily that Obama was too honest to break his promises - he's a politician, after all - but that he'd committed himself so heavily to be a tax-cutter that he'd pay too high a political price for backing away from that. And of course, he also claimed to be a "uniter," which suggests trying to find consensus with the opposition. To give credit where it's due, the stimulus is said to be about half tax cuts, so Obama doesn't seem to be breaking promises yet.

I think, is that we’re living in a Dark Age of macroeconomics. Remember, what defined the Dark Ages wasn’t the fact that they were primitive — the Bronze Age was primitive, too. What made the Dark Ages dark was the fact that so much knowledge had been lost, that so much known to the Greeks and Romans had been forgotten by the barbarian kingdoms that followed... I’m tempted to go on and say something about being overrun by barbarians in the grip of an obscurantist faith, but I guess I won’t. Oh wait, I guess I just did.

History lesson: the barbarians were not "in the grip of an obscurantist faith." If Christianity is the "obscurantist faith" in question, it was the Romans who were in its grip. And that obscurantist faith preserved Greco-Roman learning through the Dark Ages and got us out of them.

Seriously, Obama has partly bought into the Bush worldview. Bush locked in a trend, and no one as lightweight as Obama is likely to steer history in a new (and worse) direction (as, say, Pat Buchanan or Paul Krugman would do). But I don't think Obama understands it as well as Bush did, and he's likely to bungle. Standing up to Putin would be a great way to weld together the old UN-led liberal internationalism and Bush's forward strategy of freedom. But it takes a shrewd mind to recognize such opportunities, and I don't think Obama has it.

Over the last week, some Republicans have intensified their criticism of the $825 billion package as too big, too slow, and too wasteful to pull the country out of recession.

"There should be an endpoint to all of this spending - say, two years," Senator John McCain, the party's 2008 presidential nominee, said in an interview on "Fox News Sunday." He vowed to vote against the bill in its current form.

"We need to have a commitment that after a couple of quarters of GDP growth, we will embark on a path to reduce spending . . . to get our budget in balance," McCain said.

McCain. Always. Right. And with 41 GOP senators, enough to filibuster if they stick together, he could just turn into the legislative gatekeeper. If he shapes the Obama administration as much as he shaped the Bush administration, we may be OK after all.

The big upside of McCain's defeat is that he won't necessarily be out of Washington eight years from now. He could stay in the Senate till he's 98, like Strom Thurmond (who is not a role model in any other way, of course).